AUD/JPY weakens below 98.00 as BoJ holds interest rate steady at 0.5%

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The AUD/JPY cross loses ground to near 97.80 during the Asian trading hours on Friday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) after the Bank of Japan (BoJ) interest rate decision. The attention will shift to the BoJ Press Conference later on Friday.

AUD/JPY declines to around 97.80 in Friday’s Asian session.
The BoJ left policy settings unchanged at its September meeting on Thursday.
Australia’s Unemployment Rate steadied in August, but labor markets are showing signs of softness.

The BoJ decided to keep the short-term interest rate target unchanged in the range of 0.40%-0.50% at its September meeting on Friday. The decision aligned with the market expectations. The JPY attracts some buyers in an immediate reaction to the rate decision. The Japanese central bank extended the pause in its rate-hiking cycle into the fifth consecutive policy meeting in a row after delivering a 25 basis points (bps) hike in January.

BoJ’s policy statement noted that Japan's economic growth is likely to slow due to the impact of trade policies on global growth but will re-accelerate. Furthermore, Japan's underlying inflation is expected to stagnate due to a slowdown in economic growth, but gradually accelerate thereafter

Australia's labor market shows signs of cooling with a surprise fall in employment, raising the case for more Reserve Bank of Australia (RBA) interest rate cuts. This, in turn, could weigh on the Aussie against the JPY. Although the Unemployment Rate steadied at 4.2% in August, the Australian Employment Change arrived at -5.4K in August from 26.5K in July (revised from 24.5K). This figure came in below the market consensus of 22K.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

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